The Platform With Kalu Aja: Of Central Plannng And Free Markets

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I want to share a story I read about in the Economist. The military dictator of South Korea General Park Chung Hee called in the Hyundai founder Chong Ju Yung and told him ‘there is a sudden demand for tankers, go and produce them”.
 
Chong went to Greece and scoped up 2 contracts to build 260,000 ton tankers, promising his customers delivery in 2 years. At this time Korea did not have a shipyard. He then went to Barclays bank and got financing to build a modern ship yard in Korea. However no one in Korea knew how to build ships so Chong sent 60 engineering disciples to Scotland to learn. The two ships were delivered b4 there deadline. Today three of the world’s largest ship builders are from Korea. Korean ship builders have two fifth of the worlds market for new modern ships.
 
Some background, Park Chung Hee was a General, who became President via a coup, his regime was associated with authoritarian rule and saw numerous human rights abuses. Yet look at the exchange he had with the Hyundai man: “go and build ships”….
 
The General didn’t set up the Korean National Ship building Company, owned, funded and operated by the South Korean Government…in 1960 when General Park came to power, the GDP per capital of South Korea was $72. North Korea was the greater economic power on the Korean Peninsula. North Korea was industrialized, South Korea was not.
 
Today North Korea has famines, South Korea has the fastest internet access on earth. Same people, Why?
 
I believe it’s because North Korea had a government controlled economy South Korea had a free market economy, so different economic ideologies, different results
 
The IMF in its World Economic Outlook dated October 2015…listed Ethiopia as the nation with the projected highest change in real GDP in the world at 8.7%…Venezuela is at the bottom of the chart with her economy expected to contract by -10%
 
Why is Ethiopia growing and Venezuela receding? Again different economic ideologies, different results
 
Ethiopia has moved from central economic control to a free markets, Venezuela has moved from free markets to central control ….the results show
 
In a free market, all property is privately owned, and individuals are free to produce, trade, and to make-and keep-a profit. A central controlled economy is characterized by government management of the economy.
 
The Ethiopians in 1992 launched a new economic policy whose main thrust was the transformation of their command economy into a market-based economy. The principal aim of the policy was a deregulating economic activity, which had previously been subjected to central planning. A few thing Ethiopia did
 
·       Direct price controls were nearly eliminated, transferring the power of setting prices to the market.
 
·       Large devaluation of the local currency, Birr, took place, with a view to make enhance the export possibilities of domestic products. Foreign exchange auction market was introduced, to involve the market in determining the exchange rate of the Birr.
 
·       A negative list that limits the activities for which foreign exchange may be purchased was virtually eliminated. This provided to importers the freedom to obtain hard currency to import any commodity that is in demand in the domestic market.
 
·       Restrictions on payments for invisible transactions were considerably liberalized.
 
·       ¨The first public enterprises were sold, in the policy of gradually transferring, as appropriate, economic activity to the private sector,
 
 Results? From 1974 to 1990 GDP growth for Ethiopia was 1.9% per annum, Today Ethiopia is achieving annual economic growth of more than 7% . Officials expect economic growth of 11% for the 2011-12 fiscal year that ended in June
 
What about Venezuela?
 
 
Chávez's government consolidated its power over the economy in order to gain control of large amounts of resources.
 
·  President Chávez enacted the Hydrocarbon Laws which came into effect in January 2002. The new Hydrocarbons Law required that a minimum of 51% of PDVSA be owned by the Venezuelan government.
 
·  In 2006, the Chávez government began nationalization of several industries. As a result of these nationalizations, production of goods in Venezuela had dropped. Cement was nationalized, production of cement dropped by 60%, furnaces stopped and cement had to be imported. The Venezuelan government also set price controls in 2003 on around 400 basic foods in an effort to counter inflation.
 
·  The government created CADIVI, a currency control board charged with handling foreign exchange procedures. This was to control foreign exchange market by placing limits on how much USD citizens could transfer out of Venezuela. At the end of 2013, the official exchange rate was 1 USD to 6.3 VEF while the black market exchange rate was over ten times higher.
 
Results…
 
Real inflation now running at nearly 100 per cent, according to Robert Bottome of the VenEconomia think-tank, In 2010, the CIA World fact book listed Venezuela as having the highest annual inflation in the region. 
 
In Venezuela, the country with the world’s largest oil reserves, the citizens you have to queue for the right to buy toilet paper as shortages persisted.
 
The IFC ranked Venezuela one of the lowest countries for doing business ranking it 180 of 185 countries for its Doing Business 2013 repo.
 
Lessons
 
Early Africa was awash with government ownership of the means of production and also centralized management of the economy. Ghana's Nationalized Cocoa, and Gold, Nigeria nationalized Oil, Za mbia nationalized Copper.
 
The early African state became operators and regulators. It was economic incest, state owned banks, gave loans to state owned airlines who defaulted and the federal governments wrote off the loans or gave new loans, “dead” corporation were kept on permanent life support of the state…the consumer did not have a say. The effects were catastrophic, Africa became the Dark Continent, no FDI, huge sovereign debt, high unemployment, anemic economic growth.
 
Today Africa has embraced the free markets and the results are clear….of the economies projected to grow the fastest in 2016 7 are in Africa.
 
It’s important this drive is sustained…in this era of falling commodity prices, market efficiency must be promoted. The government must become enablers of private sector led job growth.
 
Specific to Nigeria, there are many Bills that will spur private sector led investment in certain sectors.  key bills to be passed are the the National Transport Commission Bill 2014, the National Roads Fund Bill, he Nigerian Railway Bill 2014, the Nigerian Ports and Harbour Bill 2014 and the National Inner Waterways Authority Bill, and the Petroleum Industry Bill.
 
These bills take the government of the management of transportation and downstream petroleum, it removes central planning and empower the economy to grow with the shackles of civil service rule….
 
Its our problem, we can fix it